Water firms may owe UK customers ?163m for spillages, say experts

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Water companies could be forced to pay their customers hundreds of millions in fines due to sewage pollution, a leading firm specialising in corporate wrongdoing has said.

Fideres LLP, which has conducted investigations into issues ranging from Covid test prices to cryptocurrency scams, is now setting its sights on England’s water companies.

Economists at the firm believe that, under UK competition laws, consumers are entitled to compensation for the raw sewage spillages that have blighted the country’s waterways and beaches.

They say households have been “exploited” by the “dominant monopoly” of water companies, which are the only such service providers in their area, and do not dispose of sewage correctly.

“We argue that these discharges constitute exploitative abuses of their dominant position,” the firm said. “This type of abuse reflects not the setting of excessive prices, but the provision (as a result of underinvestment) of an excessively low quality of service.”

They say they have calculated the damages which could be required to be paid back to consumers.

“We estimate that households purchasing UK wastewater services have since 2016 incurred damages of approximately ?163m as a result of the water companies abusing their dominant position,” the economists said.

However, there could be an even larger payout required, they added: “We also estimate the same companies have charged households more than ?1.1bn for sewage removal services, when in fact they have not safely removed that sewage, instead they have simply discharged that sewage into the country’s rivers and on to its beaches.”

They are calling for the Competition and Markets Authority (CMA) to open both competition and consumer protection investigations into the England’s water companies.

The economists also said consumers could be entitled to launch a class action against the companies, as they could be in breach of competition law.

Because water companies operate as a monopoly, in that consumers have no choice but to use the company in their area and cannot switch to a better or cheaper service, there is a price cap set by Ofwat, the regulator. Some businesses are able to choose their supplier, however.

Each year, the companies certify that the price charged allows them to meet their commitments, including those on the environment, and they have to notify Ofwat if they cannot. One of these obligations is not to release raw sewage except in exceptional weather circumstances, but the Environment Agency in England has found that there could have been widespread non-compliance with these guidelines.

Fideres argues that instead of raising prices to an unreasonable degree, which is illegal for monopolies to do under competition law, they have instead reduced investment to an unreasonable degree, meaning they are not providing the service being paid for.

For example, the Financial Times recently found that investment by water companies fell by 15% between 2020 and 2021. Over the same period, the companies borrowed ?53bn, an equivalent of ?2,000 a household, but did not invest all of it, instead paying ?72bn in dividends.

This has led the firm to conclude that while payments have not increased to an unreasonable level, the quality-adjusted price has, as quality regulations have been repeatedly breached, and they say a lack of investment could be blamed.

Non-price exploitative abuse is illegal under competition law, in article 102 (a) TFEU which prohibits an “unfair purchase or selling price or unfair trading conditions”. A 2022 report by academics at the University of Oxford noted that “although in the past exploitative cases have tended to relate to pricing practices, there is nothing in article 102 that suggests that should be the case, quite the contrary, it explicitly refers to ‘other’ trading terms”.

The law currently applies in the UK, but all EU derived laws are under threat from the retained EU law bill brought by the former business secretary, Jacob Rees-Mogg, under which they would be abolished at the end of 2023.

This claim has recently been used against Facebook, which was accused by Germany of exploiting a dominant position by not giving consumers a choice as to whether Facebook could collect unlimited personal data from non-Facebook accounts.

A Water UK spokesperson said: “Water companies are currently putting in place the largest ever infrastructure programme the industry has ever seen to improve overflows and tackle spills, at a cost of ?56bn. The next decade is critical if we are to bring about the transformation to our rivers we all want to see. Water companies are getting on with these important improvements and interventions such as this are a distraction from that vital work.”